With one week of January under our belt, we still see the hangover of the New Year’s weekend in the housing data, and available inventory of homes for sale declined last week. There were 40% fewer homes on the market now than when we started 2020 pre-pandemic.
The real signal for the full spring and — therefore for the whole year — comes between the second and third week of January. Stay tuned for the next few weeks, and we’ll watch whether buyers are just looking or ready to take action. But there are already some surprising data points sneaking it to the earliest measures of the new year.
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Available inventory
Available inventory of homes for sale declined 4% last week to 471,000. Inventory fell over the New Year’s weekend in all the big markets.
California had a particularly notable drop in the number of homes on the market. And even in cities like Austin, which have had the greatest buildup in inventory over the past year are still seeing a decline in inventory over the holidays.
While Austin has about 10% more homes on the market now than at the start of January 2020, the state of Texas as a whole still has 20% fewer homes on the market. And that’s true across the country.
A few of the hottest pandemic markets cooled the fastest over the last year, but in general the country still has a very restricted supply of homes to buy. That might be a surprising notion if you pay attention to real estate headlines, which are almost universally bearish right now. But the fact is supply is very tight. We have 40% fewer homes on the market right now than we did at the start of 2020 before the pandemic, which was already a record low for that time. You can see 763,000 homes on the market to start 2020.
One thing to note is that in most years of the past decade, inventory starts climbing in January as new listings come to the market and buyers don’t start in earnest until February or March.
Last year Inventory didn’t bottom until the end of March. I think inventory will resume its normal shape this year and bottom in January in the next week or two. That’ll be normal. But if it doesn’t, that’ll be a real surprise and bullish for home prices in the sense that the supply side of the supply/demand equation is staying far tighter than expected. So we’ll watch for that change next week. I expect inventory to rise and if it doesn’t then that’s a bullish signal for home prices in 2023. Wouldn’t that be a surprise?
Pending data signals
There’s a lot of signal in the pendings data as well. These are the homes in contract pending stage. They’re no longer active listings, but the sale is not yet closed. These are transactions that will happen in the future. The biggest note right now in the pendings data is that there are very few homes ready to close. There are 236,000 single family homes in contract. That’s 35% fewer than last year at this time.
So, while supply is lower than expected, demand is also low. One thing this tells us is that the headline home sales numbers that we’ll hear for the next several months will be very bearish. You can already see it. Homes in contract now, close in February or March, those get reported in March and April to the media. So you’ll see those report very low numbers at least into the spring. And, we’ll see if the pendings turn around before then and start to climb. I’ve been hearing some anecdotes about resurgent buyer interest from a few sources. That’s not in the data yet, but we’ll see it here if and when that change comes.
Home prices tick up
Because it’s just past the first of the year, home prices had their first week-over-week uptick since July — just a tiny uptick from $405,000 to $405,200. Assuming we have the inventory increase next week like I’ve mentioned, that’d probably be accompanied by a little price increase too. Remember that the best inventory gets listed in the spring so prices always climb. The question is how much they climb or don’t climb this Q1 and that will set the trajectory for how far home price climb or fall for all of 2023.
The price of the new listings did a surprisingly big jump this week to $395,000. Every year in the first couple weeks of January that jump happens. This was bigger than I expected. And frankly, I don’t know why. It could be that we have very few new listings and the best stuff held off until after the holidays to go on the market.
It’s just one data point, don’t read too much into it, but that took me by surprise — a stronger pricing leading indicator than I expected to see. But it’s just one data point. We’ll keep watching this leading indicator.
Price reductions dropping
Keeping with that theme, the percentage of homes with price reductions is dropping quickly. Again, this is holiday data, but it’s still stronger than I expected. We have restricted inventory across the country, and the junk stuff that took multiple price cuts last fall simply isn’t on the market anymore. We’re down to 36.5% of the homes on the market have had a price cut recently.
Price cuts should decline with the fresh inventory through February. As that inventory ages, in March and April, price cuts may start climbing again. If we get to that point and mortgage rates have climbed back over 7%, then I’d expect demand to get shut down like it did in September, and you’ll see inventory climb dramatically and price cuts too.
Right now price reductions are not crazy high and they’re falling faster than I expected. Definitely something to keep an eye on for helping buyers and sellers make decisions right now.
